Trade Facilitation
KOMMERSKOLLEGIUM
6803, S-113 86 STOCKHOLM, SWEDEN
TEL: +46 (0)8-690 48 00 FAX: +46 (0)8-30 67 59
E-POST: [email protected]
www.kommers.se
BOX
ISBN: 91-974163-7-1
– Impact and Potential Gains
Foreword
As the tariff levels and other trade barriers have decreased due to the negotiation
in the WTO and other international agreements, the costs of cumbersome trade
procedures are becoming increasingly visible. The need for trade facilitation has
during a long period of time been heavily argued by the business community to be
of pressing importance. The awareness of the costs of burdensome trade
procedures has lead to the inclusion of trade facilitation in the Doha
Development Agenda.
The National Board of Trade, which includes the Swedish Trade Procedures
Council - SWEPRO, has in this light conducted an in-depth study of the impact
and potential gains of trade facilitation. In this report, results from both previous
studies, international as well as national, and the experiences of the Swedish
business community and individual companies of various sizes and types have
been compiled and analysed in order to make the picture of trade facilitation as
complete as possible.
The results have been significant and do not only support the need for trade
facilitation, but also highlight, apart from the direct visible monetary rewards, the
many hidden gains of trade facilitation. The process of facilitating trade has been
shown to be beneficial in all types of environment and, as the Swedish experience
illustrates, earns billions both for the business and public sector. The benefits of
trade facilitation are particularly evident for developing countries and for small
and medium sized enterprises in all regions.
It is our hope that this report will serve as a useful foundation for future work in
trade facilitation, both at regional and global level, and show governments and
business that there is a clear mutual benefit to be gained by addressing the issue
of trade facilitation.
This report is written by Marcus Hellqvist, Senior Research Officer, National
Board of Trade / SWEPRO.
Stockholm, August 2002
Peter Kleen
Director General
National Board of Trade
1
Executive Summary
Trade facilitation encompasses the simplification, standardisation, harmonisation
and elimination of the procedures, data requirements and administration involved
in an international trade transaction.
The facilitation of trade procedures is seen by all major international business as
vital for economic development. Several factors are fuelling the need for trade
facilitation of which two are the globalisation of international trade and the rapid
IT-development.
The complexity of international trade procedures makes it however very difficult
to put exact figures on the monetary gains of trade facilitation. Various
estimations have calculated the cost of cumbersome trade procedures to range
between 2.5 - 15 percent of the value of traded goods. Cost calculations above 10
percent must however be regarded as somewhat questionable. A rough
calculation of the lower estimation (2.5 percent) on the value of global trade
would result in a cost of approximately US$ 325,000,000,000. This amount gives
a clear indication of the magnitude of the possible gains of trade facilitation.
It is not possible to simply convert these costs per se into gains. Still, with a very
modest claim of a 50 percent improvement the benefits from trade facilitation are
significant.
Even if there are direct monetary gains both for governments and their
companies, the essential and main benefits from trade facilitation will be, as
categorised below, materialised in other terms. These are in the end convertible to
direct welfare gains.
This report shows that the gains from trade facilitation are numerous and can be
seen in terms of:
1/ Increased Transparency and Predictability
• Direct substantial decrease in the administrative costs for companies
• Enhancement of Customs revenue from customs duties
• Minimisation of costly human errors and improved prevention of corrupt
behaviour
• Increase in foreign direct investments (FDIs)
• Enhanced overall efficiency in countries’ export and import sectors
2/ Time
Faster procedures also lead to:
•
•
•
•
•
•
Lesser storage problems
Decreased risk of the quality of merchandise being diminished
Reduced threat of facing substantial penalty fees
Decreased risk for theft
Fewer delayed payments
Reduction of loss of interest due to capital locked in goods
3/ Increased Business Opportunity
• Efficient Customs and trade procedures are key components in enabling
companies to profit from potential business opportunities. Most Just-In-Time
management methods are dependent on well-facilitated systems and
companies will favour countries with such.
2
• Reduction of the “brain drain” for smaller countries.
• Indispensable foundation for all e-business activities, a future area estimated
to be worth trillions of dollars.
4/ Amplified Customer Value
As the cost of attracting new customers is five times higher than keeping previous
customers, the need to nurture customer relationships is vital. Trade facilitation
creates customer value, which in the ever-increasing competitiveness of global
trade is a decisive competitive edge.
5/ Improved Security
Transparency and simplification narrows the possibilities for criminal activity and
well-facilitated administrations results in more revenue to fight crime and enables
resources and manpower previously used for administration to be diverted to
Customs core activities of fighting crime. It also reduces the risk of corruption
within the Customs and other authorities.
6/ Money
The effects and direct monetary gains are however most apparent in the situation
of individual companies and states.
• A Swedish company in the wholesale and retailing sector with a turnover of
approximately SEK 750,000,000, estimates that the profits from the improved
transparency, predictability, Customs clearing time and above all from
increased business opportunities and better competitiveness as result of trade
facilitation by the Swedish Customs, is around SEK 50-100,000,000 a year.
• According to internal calculations of a Swedish multinational company the
cost of only internal administration is SEK 115 per trade transaction for
intra-EU trade and SEK 3500 for trade with a third country. The difference
for this company would amount to SEK 5,077,000 for roughly one year.
• In another Swedish company, as a result of the certification system within the
Swedish “Stairway concept”, the administration cost has been reduced by 55
percent, with the total administration savings calculated to be approximately
SEK 1,300,000 a year.
• The costs in Sweden of Customs administration for both companies and the
Customs authorities in 1999 were estimated to be SEK 3,100,000,000. This
rather low figure must be seen in the light of Swedish Customs being rated as
top three in the world and, more importantly, Customs administration is only
one part of the whole trade process chain.
The majority of the gains from trade facilitation are generated by chain effects,
which will multiply the direct monetary gains several times. Thus, the total
possible administrative savings as a result of trade facilitation are estimated to be
considerable.
The gains from trade facilitation are particularly evident and important for:
• Small and medium sized enterprises (SMEs) because costly trade administration constitutes a larger share of their costs than for larger companies.
• Developing countries, firstly because SMEs constitute the significant majority
of their business sector; secondly since costly trade procedures prevent vital
foreign direct investments (FDIs) in the countries; thirdly due to its limiting
effects on corruption; and fourthly because trade facilitation evidently increases revenue from tariffs (often the major source of governmental revenue).
3
Contents
Executive Summary............................................................................................ 2
1 Introduction .................................................................................................... 5
1.1 Definition ................................................................................................ 6
2 The International Supply Chain and Trade Facilitation ................................... 7
2.1 Identifying Potential Trading Partner ....................................................... 7
2.2 Establishing Business Agreement .............................................................. 8
2.3 Ordering .................................................................................................. 8
2.4 Shipment .................................................................................................. 8
2.4.1 Insurers ........................................................................................... 9
2.4.2 Transport Intermediaries ................................................................. 9
2.4.3 Governmental Bodies .................................................................... 10
2.5 Payment ................................................................................................. 10
3 Main Issues in the Field of Trade Facilitation ................................................ 11
3.1 Previous Work and International Experiences ........................................ 12
4 Developing Trade Facilitation ....................................................................... 15
4.1 Standardisation and Simplification......................................................... 15
4.2 Automated and Digitalised Systems ....................................................... 16
4.3 Systemic Approach ................................................................................ 17
5 Gains from Trade facilitation ........................................................................ 18
5.1 Transparency and Predictability ............................................................. 19
5.2 Time ...................................................................................................... 20
5.3 Business Opportunity ............................................................................. 21
5.4 Customer Value ..................................................................................... 22
5.5 Security .................................................................................................. 23
5.6 Money ................................................................................................... 24
5.7 Potential Challenges ............................................................................... 25
6 Final remarks ................................................................................................ 27
7 Summary in Swedish ..................................................................................... 28
References ........................................................................................................ 29
Abbreviations and Acronyms ........................................................................... 31
4
1 Introduction
The importance of trade as a tool for economic development stands uncontested
in economic theory. Trade currently represents 30 percent of world GDP and is
estimated to grow to 50 percent by 2020. The importance of efficiency in trade is
especially important for smaller and more trade dependent countries such as
Sweden, where trade in relation to GDP is twice as important as in France and
four times as important as in the US.
The facilitation of trade procedures is seen by all major international organisations as vital for economic development, not least for developing countries. Trade
procedures are perceived to be a future bottleneck and there are many factors that
are fuelling the need for trade facilitation. The foremost factors are:
• The large increase in international trade
• The explosive IT-development, which has lead to faster, cheaper and more
efficient modes of trade and transport systems (such as Just-In-Time (JIT)
management and electronic commerce)
• The rapid increase in bilateral and regional free-trade agreements that often
feature complex Customs requirements (i.e. rules of origin)
• The significant change in the nature of internationally traded goods (from
complete goods towards intermediate and sub-assembled products)
• The increase in the comparative cost of cumbersome and anachronistic trade
procedures, as a result of the extensive work and progress done on other
trade liberalising issues, such as tariff and quota reductions.
The World Bank regards trade facilitation as an essential component for overall
success in economic growth and development1 and the UN estimates the potential
savings from trade facilitation to be of some US$490,000,000,000.2 This sum is a
deadweight loss and comes neither the government, the companies nor the
individual citizens in hand.
The magnitude of the possible gains has led to the issue of trade facilitation being
included in the WTO framework.
Trade procedures refers, in their most basic sense, to all the processes and work
involved in fulfilling the administrative work and information processing required
for the movement of goods in international trade. There are of course several
types of formalities, procedures and paperwork that are necessary in order for
governments and industry to conduct, monitor and control the movements of
goods and for safeguarding every part’s legitimate interest. However, the fulfilling
of an overwhelming amount of unnecessary regulations, rules, procedural
requirements and administration constitutes a de facto cost that is beneficial to
none.
The increase in security-consciousness further amplifies the need for bettermanaged and more transparent trade and customs procedures.
1
World Bank, 2001. ”Trade and Transport Facilitation – a Toolkit for Audit, Analysis, and Remedial
Action.” Page v.
2
Presentation by Mike Doran at the UN/CEFACT BPAWG meeting in Geneva 3 December 2001.
5
There are in a normal trade transaction potentially 27-30 different parties
involved, handling approximately 40 documents, 200 data elements (30 which
are repeated at least 30 times) of which 60-70 percent are rekeying at least once.3
Specific examples of trade facilitating measures can be the simplification of
Customs procedures, the harmonisation of national rules, the use of
internationally standardised documents and the possibility to electronically submit documents to authorities.
Trade facilitation can be resembled to the improvement of a complex engine.
Complicated and unnecessary trade procedures can be compared with the friction
in an engine; the loss of power resulting from parts not fitting well together is an
overall loss. An improvement in how the parts fit together (trade facilitation)
would result in less friction/costs. This would constitute a profit that would per
definition be equally distributed among all the involved parts (actors). Trade
facilitation is a win-win game, where all countries gain.
The focus of this report has been two-folded. (1) In order to illustrate the actual
benefits of trade facilitation it is necessary to show what trade facilitation is, its
great complexity, as well as how it works in different contexts and lastly where
future efforts primarily needs to be focused upon. In this context a layman’s
roadmap of trade facilitation has been developed. (2) The other focus has been to
account for the actual benefits and gains from trade facilitation, in economical
and monetary terms (where possible) but also in other terms such as security,
efficiency, competitiveness, qualitative and development.
1.1 Definition
There are several definitions of trade facilitation, all relatively similar. The term
generally refers to the simplification of procedural and administrative
impediments to trade (such as Customs administration, standards and technical
regulations), as well as associated information flows required to move goods
internationally from seller to buyer and to pass payment in the other direction.
Even if there are examples of scholars who include many more issues under the
banner of trade facilitation, we will in this report use the widely accepted definition adopted by the WTO, where trade facilitation represents:
”The simplification and harmonization of international trade procedures,” with
trade procedures being ”the activities, practices and formalities involved in
collecting, presenting, communicating and processing data required for the
movement of goods in international trade.”4
3
APEC Business Advisory Council, 1996. ”1996 Report to Economic Leaders.”
4
WTO homepage: http://www.wto.org/english/tratop_e/tradfa_e/tradfac2_e.htm.
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2 The International Supply Chain and Trade Facilitation
International trade includes many processes and actors. Even if trade facilitation
is important at all stages of a trade transaction, the gains of a measure must be
compared with the cost of their facilitating effect. A beneficial way of identifying
the key activities and relationships of the parties involved in trade is to use International Supply Chain5 analysis. This approach will also be rewarding when
discussing the delimitations that in this report have been necessary to make.
Even the most basic illustration of an international trade transaction includes
many possible parties and actions of which some are depicted below in figure 1.
Figure 1
1
Identify Potential
Trading Partner
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Establish Business
Agreement
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Customer
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Invoicee
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Invoicer
Payee
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Manufacturer
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Ship
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Authority
Intermediary
CAP (EC)
Chamber of Commerce
Consulate
Customs
Health
Licensing
Bank
Carrier
Credit Agency
Customs Agent
Freight Forwarder
Insurer
2.1 Identifying Potential Trading Partner
The problems and costs connected to the identification of a potential trading
partner on the international market are very similar to the processes at the national level. Even if an internationally standardised system of e-business, which
would increase the possibility of comparing offers and finding new partners,
might have trade facilitating effects, the role of international governmental
programmes are, in this aspect, limited. This stage in the chain is in essence a
matter of commercial marketing efforts and individual preferences.
5
The presentation of the international Supply Chain is based on the UN/CEFACT Business Process
Analysis Working Group (BPAWG) Reference Model.
7
2.2 Establishing Business Agreement
It is generally at this stage that an intermediary for the first time becomes
involved. The Supplier usually, while negotiating the terms of business/contract
contracts a Credit-checking agency to verify the credit status of the Customer.
There are two types of scenarios that are important to separate, a ”One-Off
contract” and a framework agreement. When comparing the costs of a transaction, the single trade transaction will appear to be much more intricate and
costly than the framework transaction, due to the fact that in the latter, the terms
of business and its accompanying costs have already been negotiated beforehand
and are thus not as visible in the individual contract.
2.3 Ordering
This phase normally begins when the Customer recognises a need for a product
and places an Order under an established contact or a framework agreement. The
Supplier receives the order and responds. This response can be an acceptance,
which leads to the issuing of a dispatch advise and sending of the invoice, or a
rejection, resulting in a change of the order until an agreement has been reached.
Before the acceptance of an order, the supplier contacts an intermediary, if this
has not earlier been done, to make a Credit check.
The negotiation between the Customer and the Supplier is a straightforward
process and trade facilitation measures have, apart from the possible interactions
with credit agencies, little marginal efficiency.
2.4 Shipment
The main focus of trade facilitation falls within the field of the actual movement
of goods. The necessary preparations for enabling the goods to be delivered to the
Customer includes interactions with several new actors both governmental
(Customs, licensing and certificating bodies, etc.) and various other intermediaries
(insurer, custom broker, freight forwarder, carrier, chamber of commerce, etc.).
Which processes and which parties that are involved, depends of course to a high
degree on the nature of the goods that are being traded. It is not uncommon that
especially SMEs contract a custom broker who will then handle the whole transport and Customs process.
There are basically three main groups of actors involved: governmental bodies;
insurers; and transport related intermediaries. The role of banks is also partly
present, but the financing and payment aspect will be described in chapter 2.5.
Figure 2 is a very simplified activity diagram of a ship-situation, showing the
most basic processes involved. This scenario could be the transaction of some
form of raw materials that compared with food products or livestock is very
straightforward.
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Figure 2
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Customer
Clear for
Export
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Import
End
2.4.1 Insurers
The liability of a transporter or freight forwarder is as a rule so limited that the
goods need to be extra insured. The individual trade contract/business agreement
states whether it is the Customer or Supplier who is responsible for the goods
during transport and thus bear the cost of the insurance. Cargo insurance can be
taken out on a single shipment or for several shipments within a prescribed period of time. The insurance premium is based on the value of the goods, length of
transport, amount of re-loadings and type of transport.
There is, from a trade facilitation perspective, a difference in the scope of administrative procedures if insurance has been taken out on a single shipment or for a
longer period of time. The need for insurance is in legal terms not mandatory
even if it in practise is a pre-requisite for conducting international business.
2.4.2 Transport Intermediaries
The actual physical movement of the goods involves one or several additional
actors. Mostly a freight forwarder or a carrier is booked which delivers the goods
via rail, road, sea or air to the designated location. Connected to these operations
are various administrative procedures and documentary requirements that are
necessary to fulfil.
The most common view from the private sector, especially from SMEs, is to look
upon both insurance and transport procedures as internal business deals, not
procedures managed by governmental rules.
Supervising and administrating individual contacts between private companies, be
they insurers, transporters or manufacturers, is not the direct role of trade
facilitation programmes. Yet there are several issues that lie outside the scope of
the private market, for example administrative problems concerning the
personnel working on the transport vessels (Visa and passport formalities).
9
2.4.3 Governmental Bodies
A very large part of the costs of trade administration procedures are generated in
the actual cross border situation where governmental bodies are the main actor
(Customs, health authorities, export licence authorities, agriculture departments,
chambers of commerce, Consulates, PSI Agencies,6 etc). The need and potential
gains from facilitating Customs and other administrations are thus great and are
perhaps the most important parts to start with and focus upon, in trade
facilitation.
Customs and other authorities are faced with the apparently contradictory
objectives of enforcing government regulations while at the same time posing the
minimum obstacle to legitimate trade.
The central body involved is of course the Customs, which check all the
documents and incoming (and sometimes outgoing) goods. The port operations
are in practice so closely related to Customs controls that procedures theoretically
connected to port management (and thus perhaps the transport sector) will be
included under the heading of Customs procedures.
Yet the procedures for a trader, with regard to governmental demands, starts long
before the actual border crossing, with finding out what specific information a
particular country demands. Then follows the process of collecting and providing
the right data and documentation including possible stamps and signatures and
acquiring the right certificates and licenses for the goods, etc. At the actual border
crossing all these various documents might have to be present physically together
with the goods and sometimes also checked manually.
2.5 Payment
The payment cycle usually starts when the Supplier has accepted the Order. The
Customer makes the necessary arrangements to pay the Supplier on completion of
the terms of the contract. When the Supplier requests for the payment, the
Customer instructs his Bank to initiate the payment. The payment is then
executed through the banking system.
One widely used method is the use of a Letter of Credit (L/C), which is a
document, meant to guarantee the seller payment. However, the requirements for
the buyer to acquire a L/C might in some countries be very demanding and
contribute to considerable costs. Governmental exchange control regulations in
importing countries, as well as slow remittance of funds by international banks
(which in interests alone can amount to substantial losses) constitute further
problematic and expensive procedures in international trade.
All stages, but one, in an International Supply Chain can in a sense be described
as business agreements between private actors – the exception being the processes
connected to governmental bodies/demands.
The Customs and governmental procedures are however the most vital link to
improve in the trade chain and the facilitation of the governmental trade demands
is seen, by the UN, WTO, World Bank and by the Swedish enterprises, as the
most essential aspects to improve. This area has the greatest potential for
substantial gains both for the state, the companies and ultimately for the
individual consumer.
6
The country of import may demand that a Pre-Shipment Inspection (PSI) Agency inspects the goods
and documents in the exporting country before the actual shipping.
10
3 Main Issues in the Field of Trade Facilitation
The heterogeneous nature of trade is mirrored in the multitude of various
Customs systems and procedures, as well as in the huge number of different
regulations and documental requirements that traders are faced with. Even if
much has been done to ease this situation, especially in the developed countries, a
lot remains to be done. The main concerns can roughly be summarised under five
headings:7
• Excessive data and documentation requirements
• Lack of transparency and use of pre-ruling systems as well as unclear and
unspecified import and export requirements
• Inadequate procedures and a lack of especially audit-based controls and riskassessment techniques
• High degree of unpredictability and lack of automation and insignificant use
of information-technology
• Lack of modernisation of, and co-operation among, Customs and other
governmental agencies, which thwarts efforts to deal effectively with
increased trade flows.
How these obstacles exactly are shaped and to what extent they are in effect,
depends of course on the specific country and type of goods studied. This makes
it impossible (and fruitless) to even try to catalogue them all. It is however
possible, as will later be shown,8 to point to the most common situation and some
plausible exemplifying facilitating measures.
There will always be some administrative costs connected to trade transactions,
this is inevitable, but the goal is to keep these costs to a minimum, without
exposing companies or Customs and other administrations to larger risks. The
main objectives are in summary:
• To simplify (and eliminate where possible) formalities and procedures related
to import, export and transit of goods
• To harmonise applicable laws and regulations
• To standardise and integrate definitions and requirements of information as
well as the use of information and communications technologies.
There is, as the OECD highlights, an important distinction to make between
effects/costs connected to (1) specific procedures or requirements designed,
directly or indirectly, to control trade and (2) problems with the operation and
management of those procedures.9
7
As identified by the 350 participants at the WTO Symposium on Trade Facilitation in March 1998,
see: ”WTO Trade Facilitation Symposium – Report by the Secretariat.”
8
See chapter 4.
9
OECD, 1999. ”Procedural Factors as Non-Tariff Barriers.”
11
Trade facilitation is a comprehensive and integrated approach to reduce the
complexity and cost of the trade transaction processes. It aims at ensuring that all
trade activities can take place in an efficient, transparent, and predictable manner,
based on internationally accepted norms, standards and best practices. At the
same time, it seeks to optimise the effectiveness of regulatory controls to ensure
the safety and well-being of citizens and the collection of appropriate taxes and
fees.10
The exact benefit of a trade facilitation measure differs from country to country,
from company to company and from product to product. However, as several
international studies prove, the overall positive gains of trade facilitation are
beyond doubt.
3.1 Previous Work and International Experiences
As a consequence of the methodological difficulties in making larger explicit costbenefit studies, few have been done. The major and most widely accepted studies
and estimates are presented below. It is however very problematic to crosscompare them. They do not use the exact same definition of trade facilitation, nor
similar areas (geography wise or commodity wise) or methodological boundaries
and they estimate the costs at very different periods of time. This presentation
will thus not be used to cross-compare the various previous studies, but simply
highlight their results and show the magnitude of the possible gains resulting
from trade facilitation.
US National Committee on International Trade Documentation (US NCITD) did
the first and largest study in 1971.11 It is a very comprehensive report and asserts
from the factual data collected and developed in the study, that costly
documentation is one of the major problems concerning international trade. The
report estimated that the total documentation costs in 1971 represented 7.5
percent of the value of the total US export and import shipments, approximately
US$ 6,500,000,000.12 However, this estimate was later altered to the even more
staggering 10-15 percent, because the costs were assumed to exist at both ends of
a transaction.13
SWEPRO in 1985 carried out a major study on ”Data Interchange in International trade.” It estimated that, based on data from companies and statistics from
the Swedish Central Bureau of Statistics and the Customs, the costs of Swedish
trade procedures corresponded to approximately 4 percent of the value of the
goods in both export and import situations, this constituted a procedural cost of
SEK 14,000,000,000.14
10
UNECE, (2002) ”Trade Facilitation in a Global Environment.”
11
US National Committee on International Trade Documentation, (1971) ”Paperwork or Profit$ in
International Trade” with the accompanying progress report two years later (1973) ”Progress report
on… Paperwork or Profit$ in International Trade.”
12
Approximately US$265,600,000,000 in 2001 prices.
13
Raven, John, (1996). ”International Trade Procedures – Characteristics and Costing.”
14
Approximately SEK 24,000,000,000 in 2001 prices.
12
In 1987, Ernst and Whinney was contracted to do a study and business survey for
the European Commission.15 This study was the foundation for a report by
Checchini on the Customs compliance cost of the intra-EC trade, which estimated
this cost, including both imports and exports, to be 1.5 percent of the total value
of the intra-trade between the 12 member countries. The cost would be in the
vicinity of € 7,500,000,000 and if the calculated costs of business foregone were
to be added, the total cost of Customs compliance would amount to
approximately € 12,000,000,000- 23,500,000,000. 16
The Asia Pacific Economic Co-operation (APEC) concludes in a study, within the
thorough framework of their analysis on trade and investment liberalisation and
on economic and technical co-operation, that the impact of trade facilitation in
APEC, such as streamlining of Customs procedures, exceeds that of trade
liberalisation, i.e. tariff reduction. Trade facilitation was estimated to create a
gain of about 0.25 percent of real GDP to APEC or roughly US$ 46,000,000,000
in 1997 prices.17
The Hague Consulting Group was contracted by the International Road Transport Union (IRU) to measure the ‘invisible’ barriers to the movement of road
freight.18 It was estimated that the ‘avoidable’ cost to road transporters in the
studied five countries19 was in the amount of US$ 8,000,000,000. The report
further estimates that the cost, if losses to producers, traders and tour operators
as well as lost business opportunity were included, would be twice as high.
There are, in addition to the above-presented studies, several estimates, which
lack a sufficient presentation of calculations and delimitation and must be treated
with some caution.20 In short, the studies analysed have a wide span of
estimations regarding the costs of trade procedures, ranging from 2.5-15 per cent
of the value of a trade transactions, It is more likely that the lower number is
more accurate in a developed country, while the higher is perhaps somewhat
more believable in a developing country.21 A rough calculation of the lower
estimation (2.5 percent) on the value of traded goods globally would result in a
cost of approximately US$ 325,000,000,00022. This amount gives a clear
indication of the magnitude of the possible gains of trade facilitation.
15
Titled ”Border Related Control and Administrative Formalities.”
16
Checchini, Paolo et al, (1988). ”The European Challenge 1992 – The Benefits of a Single Market.”
17
APEC, (2000). ”Cutting Through Red Tape: New Directions for APEC’s Trade Facilitation Agenda.”
18
Apart from costs from delays at borders, which clearly fall within the field of trade facilitation,
congestions, blockaded and traffic banns were included in the calculations. The presented cost must
thus from a trade facilitating perspective be treated with some caution.
19
The five countries were UK; France; Italy; Czech Republic; Poland.
20
The World Bank, OECD and UN/CEFACT are all independently developing studies within the field of
trade facilitation.
21
The presented numbers can only be seen as efforts of estimating very different situations and should
not be cross compared, they do however give clear indications of costs.
22
In year 2001 according to IMF statistics of exports and imports in world trade.
13
Even if the presented calculations show the substantial costs of poorly managed
trade procedures, it is not possible to simply convert these costs per se into gains.
Some of the procedures will cost more to reform than their potential facilitory
gain. It is however safe to say, that even with a very modest claim of a 50 percent
improvement, the benefits from trade facilitation is probably immense.
It is a bit unfortunate that most of the more in-depth studies have been done on
the conditions of developed countries, when the room for improvements and
potential benefits are the highest in developing countries. With relatively minor
changes, major improvements and gains can be generated. One example of this is
the Philippine Customs, which by introducing an EDI system reduced the time for
cargo held in Customs custody from 6-8 days to 4-6 hours for ”green channel”
goods.23, 24
A Customs modernisation programme, partly facilitated by the World Bank, in
Bangladesh have among many other things led to a decrease in Customs clearing
time from 3 days in 1999 to 3 hours in 2002.25
In Costa Rica, a trade facilitation programme including simplification of
procedures, Single Window for warehouse clearing and electronic Customs
declaration, decreased the average clearing time for goods from 6 days in 1994 to
12 minutes (115 minutes for goods requiring physical inspection).26
The gains from this increase in efficiency and in its extension, in monetary gains
are very large. For more background information on previous work, the OECD
has made a report on the business benefits of trade facilitation, which is an excellent survey of the literature and previous work within the field of trade
facilitation.27
23
48 hours for consignments in need for more thorough controls.
24
Maniego, Buenaventura, 1999. ”The Role of Information Technology in Customs Modernisation.”
25
Draper, Charles, 2001. ”Reforming Customs Administration: the Unlikely Case of Bangladesh.”
26
See WTO, 2001. ”Trade Facilitation Experiences Paper by Costa Rica.”
27
OECD, 2001. ”Business Benefits of Trade facilitation – preliminary findings from literature survey,
with particular focus on SMEs and developing country firms.”
14
4 Developing Trade Facilitation
Trade facilitation is by no means a new issue in international trade. It was already
on the agenda in the League of Nations in 1923. The main strategy before the
globalisation of the post 1950s was primarily to establish mutual recognition
between different regimes and at the most to harmonise the various independent
national systems, a process that in many aspects still is very important. The work
by the UN, WCO, the World Bank, numerous NGOs and most recently the
WTO, have since then increased the understanding of international trade
facilitation, and now provides a smorgasbord of standards, trade and Customs
procedures. The current challenge is to establish procedures and Customs systems
based on best practice and mutually accepted standards, applicable in all
environments. However, sketching a single blueprint of a trade facilitation process
that is applicable to all countries and environments, is virtually impossible, it is
nevertheless essential that all different methods, both available and under
development, are mutually compatible. If effective tools and procedures are
available, a country can after a review of its current procedures, develop
programmes fitting its particular needs, preconditions and aims. This process
appears to be as inevitable as it is logical.
Even if trade facilitation is a continuous process, which always needs to be
adapted to a country’s specific situation, there are several measures that have a
global acceptance and are arguably both effective and necessary. Some of these
measures include implementation of international standards and international
agreements, which are dependent on a global usage for their success, while others
are more of a national administrative nature. One can roughly perceive a natural
chain of development: (1) measures related to standardisation and simplification;
(2) the automation of procedures or consignment-based approach; and (3) the
systemic approach, i.e. the releasing of the physical link between documentation
and consignments.
In order for a trade facilitation process to be fully successful, three key elements
needs to be present:
• A strong political will and commitment
• A clear strategic plan
• A close co-operation with the business community.
For developing countries, an additional element must be added, well-funded and
long-term technical assistance based on a partnership between donor and recipient.
4.1 Standardisation and Simplification
The evolution from antiquated trade and Customs systems, with highly
bureaucratised paper-based procedures, must start by making a thorough analysis
and inventory of the existing trade and Customs procedures.
The aim is, to the furthest possible degree, to remove and rationalise unnecessary
requirements; making laws and requirements transparent and easily available;
decreasing the administrative layers in the process chain; and limit unnecessary
checks without jeopardising security.
15
Most of the benefits from further facilitation such as automation and
digitalisation of trade procedures remain empty, if Customs and other trade
procedures have not beforehand been simplified, standardised and harmonised.
Just constructing an electronic version of a dysfunctional paper-based system
makes little sense.
Basic trade facilitation may be done in several ways but the following section
constitutes some important actions based on international tools and past
experiences of trade facilitation projects:
• Standardisation of data and documents should be performed, preferably
combined with the implementation of standardised forms, in accordance with
the UN recommendation No.1: ”Layout Key for Trade Documents”
(UNLK)28
• Removal of specialised documents and unnecessary procedures (for example:
only one authorising official, no consular legalisation of documents)
• Requirement of signatures and stamps on documents should be abolished
• Aligned documents should be employed,29 i.e. documents printed on the same
size paper with common items of information set out in the same relative
position on each form
• Government authorities should request import an export data only once and
allow submission of data to a single entity as well as to furthest possible
extent use commercially orientated data, instead of specific Customs and
other governmental data requirements
• Laws, regulations, administrative rulings, general Customs requirements and
other information regarding procedures and data requirements should be
publicised and easily available to all parties concerned. Changes should also
be notified prior to their implementation
• Presentation of supporting documentation should not be required
• Penalisation of mistakes should be removed or substantially decreased
• Trade transactions should be allowed outside official office hours
• The level of professionalism at administrations should be raised by proper
training of staff involved
• Audit based Control and Risk Management should be implemented to
improve efficiency and security in governmental administrations, especially in
the Customs situation.
4.2 Automated and Digitalised Systems
The digitalised age has opened great opportunities for trade facilitation,
opportunities that in many cases are already being taken advantage of. The
verifiable gains of automation of processes to facilitate trade are substantial.
These gains will however rapidly fade, if the implemented digital systems are not
compatible internationally and between different countries.
28
The texts of the UN recommendations can be found on http://www.unece.org/cefact.
29
Such as the EU single administrative document, the IATA airway bill, FIATA standard freight forwarders
documents or ICC standard documentary credit forms.
16
When making the transformation from a paper-based approach to an automated,
the common experiences show that even if the exact internal systems will differ,
most of the digital solutions available are however relatively compatible. There
are several methods and systems to use, from relatively simple email based
systems to different web solutions, and to the more sophisticated EDI solutions,
where most of the transactions are being performed without direct human input.
The rapid development and use of Information and Communications Technology
(ICT), most importantly, the World Wide Web, have in recent years increased the
possibilities to use IT as an effective tool. The ICT development and its websolutions constitute a cost reduction that is very large and with a particular
promise for SMEs. Internet based and especially EDI systems enable data to be
exchanged with a minimum of human intervention both faster and more efficient.
Further efficient developments are the use of Single Windows, a system that
allows traders to lodge information with a single body to fulfil all import or
export related requirements.30
There still is with all automated systems, a constant need to continue the
simplification process parallel to any automation efforts, simply because the
business environment is ever-changing – a fact that means that so are also the
trade procedures.
4.3 Systemic Approach
The next logical step is to remove the so far fixed link between the
documentation and data of a consignment and the physical consignment itself.
The advantages of high-speed electronic data processing systems, will loose much
of its effect if the presentation of the data requirements at Customs still has to be
connected to the physical goods and its comparably slow transport speed. It is,
with over 20 percent of goods today crossing borders before it is sold (estimations
indicate that this share will in 2010 have risen to over 80 percent), inevitable that
a consignment-based system must be abandoned for a more efficient systemic
approach.
This means in essence that the documentation can be checked both before and
after the actual border crossing of the goods. It can further enable authorisation
of importers’ warehouses as Customs zones and allow periodical declaration and
fast track procedures for compliant traders (as a part of risk management
programmes). The processes, for such a system to work, must be simple, with
well functioning risk management and a close co-operation between Customs and
private sector. Sweden and the recently introduced Stairway-system is a very good
example of how to facilitate trade in the 21st century.31
Even if this presentation of trade facilitation development is very limited and only
covers some of the most basic measures, it nevertheless gives a fair picture of the
needed developments. For a more thorough presentation and a complete list of
trade facilitation measures, it is recommended to study the work of UN/
CEFACT.32
30
For more information regarding Single Window, see UN/CEFACT, 2002. ”The Single Window Concept.”
31
See, http://www.tullverket.se/TargetGroups/Business/frameset.htm.
32
In particular Recommendation 18: ”Facilitation Measures related to International Trade Procedures”
and ”Compendium of Trade Facilitation Recommendations”, both available on
http://www.unece.org/cefact.
17
5 Gains from Trade Facilitation
Regardless of a country’s level of simplified trade procedures, there are always
gains to be made from further improvements. Trade facilitation is a continuous
process that adapts to new technologies, environments and needs of the business
community and governments.
In order to include the experiences, actual costs and benefits from trade
facilitation, the co-operation with companies involved in international trade has
been essential in this study. The presented gains and arguments have been
collected both from previous studies, internationally as well as nationally, from
the Swedish business community and from individual companies of various sizes
and types, all in order to make the picture of the gains from trade facilitation as
complete as possible.
Trade facilitation is, as have been shown, very complex and includes a multitude
of variables. This is first and foremost the case when trying to aggregate and put
a monetary figure on the direct gains. Simply trying to present a prototypical
trade transaction is a task worthy Sisyphus himself. The costs and procedures of a
single trade transactions is dependent on (1) which countries and possible transit
countries that are involved (with different legislative system, demands, international agreements and processes); (2) what type of goods; (3) means of transport
(air, sea, train, road or multimodal transport); (4) the human factor i.e. the error
rate, efficiency, law abidingness and skills of the involved actors in the transaction
(own employees, banks, insurers, transporters, freight forwarders, Customs and
other public officials, etc); and (5) the internal procedural and administrative
system of the companies involved in a business agreement.
This situation does not mean that trade facilitation in itself is either impossible or
meaningless, just that putting an aggregate figure on the gains is very difficult. As
the presentation in chapter 3.1, proves the benefits are massive, irrespective of
how the studies are performed. It must however be emphasised that regardless of
the problems of numerical measurement, trade facilitation is as necessary as it is
beneficial, something that is confirmed by all international studies on trade
procedures and which the Swedish business community unanimously supports.
Many of the gains are intertwined and it is sometimes hard to pinpoint cause
from effect, but based on the inputs from both the private and the public sector,
six main aspects can be found. Gains in terms of:
•
•
•
•
•
•
Transparency and Predictability
Customer Value
Time
Security
Business Opportunity
Money
These aspects will be presented separately and where possible also highlight the
monetary cost or gains of their effects.
18
5.1 Transparency and Predictability
The increase in transparency and predictability is valued by the private sector as
one of the most important gains from trade facilitation. Difficulties in acquiring
information about rules and regulations, requirements to present same data at
different instances, combined with disparate requests and administration for
different countries and companies, are some of the many costs related to lack of
transparency and predictability.
There is firstly a direct economical gain for all companies due to the decrease in
the internal administration. The more transparent a process is, the lower the
compliance costs, which relates to the producing, collecting, transmitting and
processing of required information and documents.
When the European Single Administrative Document (SAD) was introduced and
implemented, over 150 different types of special documentation that previously
needed manual data input by companies, were removed. The gains for European
traders as a result is immeasurable, but are partly reflected in the comprehensive
increase in intra-EU trade.
Secondly, the easier a process is, the less likely are human or non-human errors.
As international trade transactions usually requires error-free operations, even a
tiny error can halt entire transactions, or at least multiply the compliance cost
(one Swedish enterprise had their whole shipment halted and were forced to redo
all paperwork due to a miscalculation of the öre adjustment, while another is
being fined US$900 for every error, including mistyping). The penalties connected
to compliance errors constitute on top of this a stunningly high figure.
According to internal calculations of a Swedish multinational company the cost
of internal administration per L/C transaction is SEK 115 for intra-EU trade and
SEK 3500 for trade with a third country. The difference (SEK 3385) for this
company would amount to SEK 5,077,500 for roughly one year.
By having a transparent system with high predictability, the efficiency and profits
of the private sector greatly improves. This generates a more productive,
competitive and profitable environment, benefits that according to the Swedish
enterprises are immensely high. High predictability also means that the management and steering of the whole company can be greatly improved, benefits that
are important, yet hard to calculate.
Trade facilitation is additionally an increasingly important factor for attracting
foreign direct investment (FDIs). Cumbersome Customs and trade procedures are
a very effective way of deterring companies from FDIs, resulting in loss of potential tax revenue, as well as job opportunities and prospective transfer of
technology, all of which are wanted in most developing countries.
Chilean Customs estimated that the introduction of their Electronic Data
Interchange (EDI) system, which decreased the processing time, resulted in business savings of over US$ 1,000,000 per month, for a system cost of only US$
5,000,000.33
33
WTO, 2000. ”Trade Facilitation: Chile’s experience with the modernization of Customs administrations
based on the use of information technology.”
19
It is essential for developing countries that their mutual Customs and trade
procedures become much more simple, transparent and predictable at both import and export side, since 40 percent of all manufactured goods and 30 percent
of all agriculture products are traded between developing countries.
A more transparent system evidently creates better possibilities for fighting
corruption, which is a plague in many developing countries. Combined with the
faster and more efficient Customs procedures these measures will greatly enhance
the revenue collections at Customs, often one of the largest sources of income in
many developing countries.34
5.2 Time
Delays at borders, in harbours and other checkpoints can take days, weeks and
sometimes even months. It is easy to understand that this is a burden to trade.
Delayed deliveries lead to delayed payments; penalty fees; quality diminishment
of merchandise; storage problems; and increased risk for theft – the waiting at
check points adds massive cost to already expensive transports. Each transaction
needs time to be processed but that time can become unnecessarily long and
costly due to low productivity of officials, burdensome administration,
understaffing, lack of automation but also due to more deliberate delays such as
low incentives for official, bribery, unofficial governmental regulations and
premeditated for other reasons.
There are numerous studies showing how facilitation of Customs procedures have
reduced Customs process time from days and weeks to minutes, without
jeopardising the crime preventing role of Customs.
The decrease in border delays have for a large retail company with a turnover of
around SEK 1,300,000,000 generated the possibility of using a central warehouse
for the whole Nordic market, a restructuring that annually generates an
additional SEK 1,000,000 in profit.
Lengthy processing time affects not only the opportunity cost, but also the capital
standing of firms, this since capital bears interest and frozen capital kills other
business opportunities.
The loss of interest from the time of delivery, until receipt of payment, results in a
reduction of the exporter’s capital standing and vice versa for the importer’s
capital standing with regard to time from payment to receiving the goods.
The cargo release time has, after the 5-year reform of the Peruvian Customs, been
reduced from an average of 30 days to a maximum of 24 hours for green channel
cargo (one or two days for goods chosen for inspection), while at the same time
quadrupling the revenue collection.35
At 12 percent interest and with the value of the Peruvian import in year 2000,
this would very roughly have constituted a maximum gain to the involved
companies of approximately US$ 71,997,000.
34
According to Kubota, Keiko ”Fiscal Constraints, Collection Costs, and Trade Policies:” the average
share of import duties to the government revenue is in low income countries 25,9 percent (compared
to 0.5 percent in the OECD countries).
35
For more information about the reform, see: Lane, Michael H., 2000. ”International Supply Chain
Management and Customs: Peru - a Case Study.”
20
Delays in banks’ payment processing may cause considerable costs in loss of
interest, it has been stated (without giving exact details) that the time taken
between delivery of a good to payment can vary from 88 to 208 days. This delay
represents, at an interest of 12 percent, between 3-7 percent of the total value of
the goods.36
For operators whose capital reserves are thin, such as SMEs and most enterprises
of developing countries, lengthy processing constitutes a prohibitive trade barrier.
Minimising the delays at border thus means a higher trade flow. A natural
consequence of this is increased profit for companies due to higher cash-flow and
increased possibilities the time for selling and buying goods. This is particularly
evident for companies exporting to bordering countries.
A major international express delivery company can, as a result of the faster
Customs procedures implemented by the Swedish Customs, utilise all their transport vehicles one extra hour a day, resulting in an hour of extra revenue. An hour
of extra revenue will roughly increase the overall profits by 5-10 percent.
There are, furthermore, goods that are extra sensitive to delays, such as foodstuff,
livestock and high-tech products, to which delays obviously will greatly decrease
the value and sometimes destroy the goods completely, resulting in huge costs for
the individual company. It is easy to understand what happens to tomatoes or
apples when they are delayed at Customs or ports for weeks.
The longer the delays are at Customs, the higher the opportunity cost of conducting trade, reducing the possibility and benefits of cross-border trade.
5.3 Business Opportunity
The cost of not being able to take advantage of business opportunities or of
businesses not considered, due to trade procedures, constitutes a potentially
important factor. It is, as numerous studies show, extra problematic to measure,
but composes a clear problem for many companies. Even if all types of companies
are hit by lost business opportunities, the burden of trade impediments, which de
facto is a fixed cost, constitutes a larger share of SMEs’ costs than of larger
companies.
Numerous SMEs produce innovative (and even unique) products with a sound
potential for export. Yet, often their products, partly due to costly and
complicated trade procedures, rarely reach beyond the domestic markets, thus
limiting them from markets, which might multiply their turnover. There are some
studies, which show that SMEs starting with international trade have a better rate
of survival.37
36
WTO, 1998. ”WTO Trade Facilitation Symposium – Report by the Secretariat”, page 99-100.
37
According to a McKinsey Consulting report February 2001 and a Goldman Sachs report, December
2000 referred to at a presentation by Ian Sayers from the International Trade Center at the workshop
on trade facilitation in Geneva 2-3 April.
21
Trade facilitation does not ”merely” benefit the trade or investing companies
alone, but also all transport intermediaries who would otherwise not have had
the opportunity to transport the goods to the ”new” markets, hereby creating a
chain effect.
Efficient administration and trade procedures are key components in attracting
investments that in turn will create new business opportunities. In an era of
outsourcing and JIT production techniques, the need for an efficient cargo
infrastructure, the rapid passage of inputs and finished goods through Customs
controls and streamlined transactions procedures speak for itself. A delay can
disrupt the whole production and transport chain and may result in several potential opportunities being impossible to profit from. When asked to identify the
reasons for investing in particular countries, companies frequently points to
efficient trade and Customs procedures as a key component in the decision process.38
Since the positive effects of a high inflow of foreign currency (via FDIs) in
developing countries are much higher and also because SMEs in general
constitutes the most significant share of their business sector, this means that the
gains from improved market access are especially evident in developing countries.
The present development and use of e-business means that regular business does
not necessarily have to be physically present on the market. As a result, e-business
companies will be able to reach geographical markets, which were previously not
accessible. This means that SMEs will not have to move to more developed,
larger, or more profitable areas (countries), in essence reducing the ”brain drain”
by keeping innovative companies.
Apart from gains of cost savings and utilising business opportunity by improving
existing trade procedures, trade facilitation and especially electronic business is
also about the business development aspect of trade, creating new business
opportunities. The UN foresees that electronic business and the use of the Internet
World Wide Web and associated standards, will bring new business opportunities
and revenue streams that are linked to modern business and transport solutions,
which are estimated to be worth trillions of dollars.39
5.4 Customer Value
In an international business environment that is getting ever more competitive,
with shrinking margins and increased financial constraints, the need to be
innovative and to retain and generate value to the customer is essential. It is in
business terms estimated to be five times costlier to attract a new customer than
to retain a previous customer. With this in hindsight, creating customer value, by
providing accurate information and fast delivery at a low cost, is a vital
competitive edge.
38
WTO, 1999. ”Trade Facilitation in Relation to Development – communication from the European
Communities”, page 2.
39
22
UN/CEFACT, 2002. ”Trade Facilitation in a Global Environment”, page 10.
Due to the growing employment of JIT management in companies, where it is
essential to know the exact status of the transported goods (in order for parallel
consignments to arrive simultaneously and to know when to prepare other
processes and to provide customers with accurate timeframes), well facilitated
trade procedures is essential for a foreign based company to compete on equal
terms with national companies, as well as for home-based companies with
facilities located abroad.
A more surprising effect of the Swedish trade facilitation work is a case, where a
company states that ”the good-will” acquired from assisting Customs as a
lookout for suspicious and criminal activity, gave them a competitive edge by
being regarded as, not only a good supplier, but also a good citizen.40
5.5 Security
Trade facilitation is beneficial both to the business community and governments.
Traders gain through faster delivery and reduced transaction costs. Government
profit in terms of enhanced revenue collection, increased economic efficiency,
augmented predictability and increased opportunity to divert resources to fight
criminal activities.
The awareness of the security issue in international trade has dramatically
increased after the tragic events of 9/11. The almost exponential increase in international trade means similar increase in pressure on the Customs. Trade
facilitation has in this respect a key role to play. Making Customs more efficient,
by risk assessment, more efficient procedures and differing clerical work to crime
prevention, means a higher safety for countries and their citizens.
A decrease in administration, leads to substantial gains for the Customs
authorities, the Federation of Swedish Enterprises estimated that the administrative costs of trade procedures for the Swedish Customs in 1999 were
SEK 600,000,000. This cost constitutes nearly half of the whole annual
governmental appropriation.41
By simplifying and facilitating Customs procedures, chances increase that fraud
and criminal activities will be discovered. The simpler and the more transparent
the system is, the more easy it gets to detect suspicious behaviour. It further
counteracts potential corrupt behaviour within the Customs, a cost that
governments rarely speak of, but too many companies have felt.
The improved co-operation between economic operators and Swedish Customs,
within the framework of the quality control programme and risk management,
have resulted in transport companies assisting Customs officials as ”frontline
lookouts” for suspicious behaviour. A verified suspicion from a Swedish transport
company, after receiving a dubious business proposal, lead to the detection of a
smuggle attempt of cigarettes worth SEK 2,220,000.
40
Interview with Kjell Johansson, Director General of the Swedish Customs, in ”Ny tid för tullen”, page 2.
41
The governmental appropriation to the Swedish customs was in 1999 SEK 1,107,047,000.
23
Facilitating Customs procedures means releasing financial resources as well as
staff, both which can be diverted from routine clerical work to the core work of
Customs, upholding laws and preventing smuggling of drugs and weapons and
other criminal activities. A transparent system further narrows the scope for
corrupt behaviour that leads to a diminishing black market sector often infected
with costs due to crime and loss of tax revenue.
5.6 Money
A recent study carried out by the Swedish Customs on the costs of Customs
procedures, found that the total cost of Swedish Customs procedures for the
Swedish companies in 1999 amounted to SEK 2,500,000,000, of these costs
approximately 60 percent were related to export procedures and 40 percent to
import procedures.42 Add to this the estimated internal administration costs for
the Swedish Customs authorities of SEK 600,000,00043 for a rough estimation
of the total cost and possible gain of only the Customs procedures to be
SEK 3,100,000,000.44
Even if this figure might seem high, it must be mentioned that Swedish Customs is
rated among the top three in the world45 and these costs will in many other
countries be likely to be several times higher. Customs procedures are further
merely one part of the governmental procedures, and the governmental bodies are
just one aspect in the international trade chain. This leads to the strong
assumption that this rather low Customs compliance cost is only a fraction of the
real costs of poorly managed trade procedures.
In a very unlikely scenario where this cost could in equal shares be directly
transferred to the citizens of Sweden, each person would bear a burden of a mere
SEK 344 a year. This low figure is however very misleading, since this only
constitutes the cost of the direct Customs related paperwork in Sweden and does
not take into account the losses from chain effects or all the other actors and
areas that have been put forward in the previous chapters. It further only focuses
on an internal Swedish perspective, which ignores the costs that the companies
must bear due to the heavy and cumbersome procedures in all other countries.
These costs hit the Swedish consumer (and other consumers) by higher prices of
all goods bought. If all these aspects could be included, the presented figure
would be multiplied numerous times.
The fact that a unanimous business community continues to heavily stress the
necessity of facilitating all parts of trade is a crystal clear indication of the hidden
gains of trade facilitation. In the discussions with Swedish companies regarding
the trade facilitation of the Swedish Customs, particularly the Stairway concept, it
was repeatedly stated that the gains from the system far out-measured the
previous administrative costs.
42
The Swedish Customs, 1999. ”Näringslivets kostnader för Tullproceduren.”
43
Presentation by Mr Carl Ström, Regional Manager of the Confederation of Swedish Enterprise and
responsible for Customs matters, at the EMPACT, partnership for the future seminar in Stockholm
June 6-8, 2001.
44
US$ 313,343,000.
45
According to a Swiss study on the views and experiences of companies regarding different
governmental bodies. (Interview of Lars Karlsson , National Director Development at the Swedish
Customs by Pelle Nisser in ”Ny tid i Tullen.”
24
A Swedish company in the wholesale and retailing sector with a turnover of
approximately SEK 750,000,000, estimates that the profits from the improved
transparency, predictability, Customs clearing time and above all from increased
business opportunities and better competitiveness, resulting from the Swedish
Customs’ new Stairway project, is around SEK 50-100,000,000 a year.
The administration cost in another Swedish company, as a result of the
certification system within the Stairway concept, has been reduced by 55 percent,
with a the total administration savings calculated to be approximately SEK
1,300,000 a year.46
Even if the calculable effects in numbers, be they in percentage or figures, might
seem low, all studies show the immense chain effect impact, that trade facilitation
has on the economic well-being of governments, companies and consumers.
SITPRO47 estimated in 1998 that by using electronic solutions and e-commerce
tools you could save up to 90 percent of the transactions cost. Their estimates
showed that the normal cost of to a paper-based purchase order is approximately
US$ 200, compared to the estimated $ 20 cost of using electronic commerce.48
Well facilitated trade procedures enables companies to focus on their core
functions, which will improve their business and lead to better and cheaper
products being developed and produced.
5.7 Potential Challenges
It must be remembered that there is always a cost connected to a change of status
quo. This cost will for a trade facilitating measure, be borne by both the
government (or funding organisation) and the companies. On whom the heaviest
burden will fall, depends on the level of the county’s development in trade
procedures and on the type of trade facilitation programme.
For a developing country where the highest priority usually is to facilitate the
actual Customs and the accompanying procedures, the cost borne the private
sector is comparably low. The cost of Customs facilitation and technical
assistance requirements depends on the type of reform a particular governments
redeems the most necessary. For example, the loans of the World Bank to
streamline and modernise Customs procedures in Tunisia amounted to
US$ 35,000,000 in 1999 and to Poland US$ 38,000,000 for upgrading the
physical and managerial infrastructure of port facilities,49 while the
implementation of an EDI system in Chile cost only US$ 5,000,000 (a reform
that had a pay off period of only 5 months).50
46
Anselmsson, Carlsson, Viklund, Elfving, 2002. ”Tullverket och Servicetrappan.”
47
The UK Simpler Trade Procedures Board.
48
WTO, 1998. ”WTO Trade Facilitation Symposium 9-10 March 1998 – Report by the Secretariat”,
page 36.
49
Wilson, John, S., 2001. ”Trade Facilitation Lending by the World Bank – Recent Experiences,
Research and Capacity Building Initiatives Draft paper prepared for the WTO workshop on Technical
Assistance and Capacity Building in Trade Facilitation Geneva 10-11 May 2001.”
50
WTO, 2000. ”Chile’s experience with the modernization of customs administrations based on the Use
of information technology.”
25
Companies, especially larger companies are sometimes reluctant to implement
new international systems and standards, because of the existence of companyinternal well-integrated administrative systems. Changing all or parts of a
functioning internal system and implementing a new standardised system will
constitute a direct cost (sometimes perceived to be higher than the gain for the
individual company). This might deter companies from implementing tradefacilitating measures, even if the business community as a whole has great gains
to make. It is thus important to include the business community at an early stage
in the development process of trade facilitation in order to create legitimacy and
ownership and make the process as smooth and effective as possible.
The increased transparency that often follows trade facilitation might also unveil
previously invisible costs, which can deter companies from getting involved in or
continuing a trade facilitation process, it is thus necessary to stress that these
costs were present beforehand and should not be attached to the costs of trade
facilitating measures.51
Another challenge is the problem of cause and effect. What in one part of a trade
network may appear to be a trade facilitation measure can in other parts create
difficulties in other parts.52 It is very important to work with an international
perspective and use international standards when facilitating national trade
procedures. It must be stressed that there is no blueprint of a perfect trade
facilitation programme that fits all countries, on the contrary, trade facilitative
measurers must be adapted to each country’s individual needs, capabilities and
general situation, but it must have an international perspective in order to create
the highest positive impact on economic development.
It is relatively easy to measure the cost of trade facilitation in developing
countries if only looking at the costs of the current aid programmes. It must
however be emphasised that the costs of not facilitating trade procedures will be
many times higher and in the long run unbearable.
51
An example could be the cost of implementing and using an EDI-system. Costs gets visualised
in the accounting and can be mistaken for an added cost, when it in reality substitutes costs related to
phone, paperwork and postage.
52
It can be argued that PSI may be a solution to the costs of Customs in an importing country. However
it will firstly create an additional problem and cost in the exporting country and secondly, the exporter
will include this cost in its export price, resulting in the cost finally being borne by the consumers in
the importing country.
26
6 Final Remarks
Trade facilitation is, as have been shown a plus-sum game, but there are
nevertheless some instances, where trade facilitation will have an extra strong
influence, thus creating even higher gains. This is the case for:
(1) Developing countries, where the room for improvements and potential gains
are substantial; and for (2) small and medium sized enterprises, since SMEs’ costs
of compliance with procedures are proportionately higher. The fact that
developing countries have a higher proportion of SMEs, as well as benefiting
more from increasing inflow of foreign capital (from FDIs), multiplies their potential gain from trade facilitation.
Still, the loud voice from companies in Sweden and in the rest of the developed
world, proves that the need to make trade procedures easier is vital in all types
environments.
Trade facilitation means that companies can focus on their core activities and as a
result produce newer, better and cheaper products and services. Even if the gains
cannot be directly lump-summed into the purse of every consumer, it is still the
individual citizens that in the end profits from a better facilitated trade system by
the distributional tax system, salaries, increased security and better, more and
cheaper products. Basically the better and more profitable the companies and
private sector gets, the better for the society as a whole, resulting in the end in
increased welfare.
Marcus Hellqvist
Senior Research Officer
27
Summary in Swedish
Vinster och effekter vid förenkling av handelsprocedurer - sammanfattning
Handelsprocedurer innefattar alla informationsflöden och administration som är nödvändiga när företag ska importera eller exportera, dvs. dokumentation, offentlig kontroll,
förtullning, försäkringskrav, transportprocedurer, etc. Det har länge varit tydligt att
krångliga regler och till synes onödiga administrativa krav inneburit en betydande kostnad och effektivitetsförlust för företagen, den offentliga sektorn och konsumenterna.
På grund av den höga grad av komplexitet i internationell handel är det mycket svårt att
få fram en exakt siffra på hur stora kostnaderna är och därmed beräkna vinsterna som en
förenkling av handelsprocedurer ger.
Olika internationella studier beräknar kostnaden till mellan 2-15 procent av värdet av
varuhandeln, beroende på vilket land/länder som studerats och val av metod. Kostnadsberäkningar över 10 procent bör dock betraktas med viss skepsis. En grov beräkning av
det lägre värdet på Sveriges import under 2001 skulle indikera en handelsprocedurkostnad på närmare 36 miljarder kronor. Denna beräkning ger en klar finger-visning om
storleksordningen på kostnaderna.
Internationella studier och erfarenheter från det svenska näringslivet visar att förenklingar av handelsprocedurer framför allt ger följande vinster:
•
•
•
•
•
Ökad transparens och förutsägbarhet
Tidsbesparingar
Nya eller förbättrade affärsmöjligheter
Förstärkta kundrelationer
Förbättrad säkerhet
Resultaten pekar på att behovet av att förenkla handelsprocedurer är extra stort för små
och medelstora företag och i utvecklingsländer.
Ett svenskt företag i grossist- och detaljhandelsbranschen med en omsättning på ca 750
miljoner kronor beräknar att vinsterna till följd av svenska handelsprocedurförenklingarna i form av ökad transparens, förutsägbarhet, minskad tullklareringstid och
framför allt nya affärsmöjligheter och ökad konkurrenskraft, ligger mellan 50 och 100
miljoner kronor per år.
Enbart tulladministrationen för svenska företag och tullmyndigheten beräknades 1999
kosta 3,1 miljarder kronor. Detta motsvarar en kostnad per capita på 344 kronor. Den
svenska tullen är rankad bland de tre bästa i världen, vilket innebär att kostnaderna i
mindre utvecklade länder är flera gånger högre.
Enligt företagsinterna beräkningar hos ett svenskt multinationellt företag uppgår kostnaden för enbart internadministration till 115 kronor per handelsuppgörelse inom EU och
3500 kronor utanför EU. Skillnaden (3385 kronor) mellan procedurer inom och utanför
EU, skulle för företaget i fråga motsvara en ungefärlig årskostnad på drygt 5 miljoner
kronor.
Ett annat svenskt företag minskade sina administrativa kostnader till följd av förenklingar genom tullsamarbetet inom Servicetrappan med 55 procent. Besparingen till följd
av minskade administrationskostnader beräknades till ca 3,1 miljoner kronor per år.
Det bör observeras att kostnader kopplade till tulladministration endast är en del i hela
handelsprocedurkedjan. De relativt låga kostnadssiffrorna för tulladministration är något
missvisande i och med att dessa endast omfattar kostnader direkt kopplade till tullprocessen. Om andra delar i handelsprocedurkedjan tas med i beräkningarna skulle de
totala potentiella besparingarna och vinsterna till följd av förenklade handelsrelationer
således vara betydande.
Rapporten har gjorts av Kommerskollegium och Handelsprocedurrådet - SWEPRO.
28
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30
Abbreviations and Acronyms
APEC
Asia-Pacific Economic Cooperation
BPAWG
Business Process Analysis Working Group
EbXML
Electronic Business using eXtensible Markup Language
EDI
Electronic Data Interchange
EFTA
European Free Trade Association
FDIs
Foreign Direct Investments
FIATA
Fédération Internationale des Associations de Tranistaires et
Assimilés
GATT
General Agreement on Tariffs and Trade
GDP
Gross Domestic Product
IATA
International Air Transport Associations
ICC
International Chamber of Commerce
ICT
Information and Communication Technology
IMF
International Monetary Fund
IRU
International Road Transport Union
JIT
Just-In-Time
L/C
Letter of Credit
NGOs
Non-Governmental Organisations
OECD
Organisation for Economic Co-operation and Development
PSI
Pre-Shipment Inspections
SAD
Single Administrative Document
SITPRO
UK Simpler Trade Procedures Board
SMEs
Small and Medium Sized Enterprises
SWEPRO
Swedish Trade Procedures Council
UN
United Nations
UNCEFACT
United Nations Centre for Trade Facilitation and Electronic
Business
UNCTAD
United Nations Conference on Trade and Development
UNECE
United Nations Economic Commission for Europe
UNLK
United Nations Layout Key
US NCITD
US National Committee on International Trade Documentation
WCO
World Customs Organisation
WTO
World Trade Organisation
(UNCEFACT)
31
32
Trade Facilitation
KOMMERSKOLLEGIUM
6803, S-113 86 STOCKHOLM, SWEDEN
TEL: +46 (0)8-690 48 00 FAX: +46 (0)8-30 67 59
E-POST: [email protected]
www.kommers.se
BOX
ISBN: 91-974163-7-1
– Impact and Potential Gains